Alcoa Corporation (NYSE:AA) Q3 2017 Earnings Conference Call - Final Transcript

Oct 18, 2017 • 05:00 pm ET

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Alcoa Corporation (NYSE:AA) Q3 2017 Earnings Conference Call - Final Transcript

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Presentation
Executive
Roy Harvey

Texas, an action that is expected to improve earnings beginning next quarter. We continue to see strength in our markets, and we are raising our full-year view of global aluminum demand. The change is related to increased pull for aluminum in China, where the government is also enacting supply side reforms that are resulting in capacity curtailments. This dynamic is moving the global aluminum market from a slight surplus into relative balance.

As in the last quarter, the strength in the market continues to push alumina and aluminum prices higher and has stoked inflationary pressure on raw materials and energy. Based on higher alumina and aluminum prices, Alcoa has increased its projection for full-year adjusted EBITDA to approximately $2.4 billion. This improved projection, up from last quarter's estimate of $2.1 billion to $2.2 billion, implies over $800 million in adjusted EBITDA for the remainder of the year.

With that, I'll turn it over to Bill for a closer look at the third quarter financials and our full-year outlook.

Executive
William Oplinger

Thanks, Roy. Sequentially, revenues are up 4%, increasing $105 million to $3 billion with higher shipments in our bauxite and aluminum segments and higher aluminum prices. Compared to last year revenues were up 27% on both higher alumina and aluminum prices.

Net income attributable to Alcoa Corporation was $113 million or $0.60 per share increasing $38 million sequentially or 51% primarily due to higher business segment earnings. Adjusted net income, as Roy said, excluding special items was $135 million or $0.72 per share.

Special items totaled an unfavorable $22 million after tax. To provide more transparency, we sorted the special items by income statement category and present them on a pre-tax and pre-non-controlling interest basis. We have also included an appendix schedule that lists each special item and its net income impact.

Within COGS and SG&A, we have special items related to the restart of the Warrick and Portland smelters for $25 million, plus the settlement of several Brazilian tax cases for $11 million. By settling these tax cases now, we were able to eliminate approximately $50 million of future exposure. Within restructuring, we reversed the Warrick closure reserves of $29 million, partially offset by charges related to office closures, including the New York office and take or pay contracts at curtailed locations.

Now, let's look at our adjusted EBITDA and full income statement after special items. Our third quarter adjusted net income at $135 million is 16% higher than the second quarter. Compared to the year prior, our adjusted net income improved $230 million; adjusted diluted earnings per share improved $0.10 sequentially to $0.72 per share and grew $1.24 per share year-over-year.

Adjusted EBITDA excluding special items reached $561 million in the third quarter, up $78 million sequentially and nearly doubled year-over-year, up $277 million or 98%. On a sequential basis, our EBITDA margin increased 200 basis points to 18.9%, primarily due to higher earnings in our aluminum segment. Year-over-year, our margin improved 670 basis points on higher alumina and aluminum